The euro continues to struggle in the short term despite better-than-expected GDP numbers for Q3. The selloff of the single currency runs contrary to the rally of the U.S. dollar. You can read more about the greenback's advance from our comprehensive GBPUSD analysis from yesterday.
Eurostat's latest GDP growth rate numbers revealed that output in the Eurozone jumped by 2.2 per cent in the three months leading to September, in accordance with the preliminary forecasts.
Despite the marginally better performance compared to the one recorded in Q2, the latest growth rate numbers were not enough to offset the current pressures faced by the tanking euro. As can be seen on the daily EURAUD chart below, the single currency continues to retreat against other majors.
The price action is establishing a major downtrend, following the last bearish reversal that was underpinned by the emergence of a major Head and Shoulders pattern.
Notice that recently, the price action established a dead cat bounce from the 61.8 per cent Fibonacci retracement level at 1.57112, which indicates that the underlying downtrend would very probably continue to head lower.
This assertion is further substantiated by the fact that the dead cat bounce itself represents the second retracement leg (3-4) of a major 1-5 impulse wave pattern, as postulated by the Elliott Wave Theory.
The current impulse leg (4-5) would, therefore, likely head towards the previous swing low (at 1.52680) next, possibly even breaking down into uncharted territory.
Despite the robust GDP growth rate numbers for Q3, the general recovery in the Eurozone continues to be tentative. This was underpinned by the only moderately improved economic sentiment in Germany, the biggest economy in the Eurozone, in November.
Nevertheless, the European Central Bank perceived these developments to be enough to warrant the adoption of a slightly more hawkish policy stance during the last meeting of its Governing Council.